Point-and-figure (P&F) charts have been a part of the technician’s toolbox for more than a century. They were used by Charles Dow in the late 1800s and Victor deVilliers published the first detailed explanation of this technique in 1933 in his book, “The Point & Figure Method of Anticipating Stock Price Movements”. P&F charts track only price changes and ignore time. Proponents of this technique believe that focusing solely on price changes eliminates day-to-day market noise. By ignoring smaller movements, traders believe that it should be easier to identify significant support and resistance levels. In this article we’ll introduce you to several popular P&F patterns that may be useful in identifying potential breakouts.
Using a Traditional ToolThe simplest trade signals on a P&F chart are double tops and double bottoms (Figure 1). A double top buy signal occurs when a column of Xs, which are used to note rising prices, exceeds the top of the previous X column. A double...
